Morning Wrap

Today ’s Newsflow Equity Research 06 Sep 2016 Upcoming Events Select headline to navigate to article

Applegreen Robust H1 outcome Company Events Reports solid H116 numbers 06-Sep ; Q2 2016 Results Dalata Hotel Group; H116 Results easyJet Demand looks good but we don’t know at what DS Smith; Q1 2017 Results easyJet; August 2016 - Traffic Stats price 08-Sep Air France-KLM; August 2016 - Traffic Stats IAG Europe okay, long-haul weak 09-Sep Greene King; Q1 2017 Results J D Wetherspoon; FY16 Results DS Smith Robust statement but already at a premium to Lufthansa; August 2016 - Traffic Stats 12-Sep Associated British Foods; Q4 2016 Trading Update the sector Green REIT; FY16 results

Draper Esprit Conditional offer for Movidius Commercial Property Regulator gears up for post Brexit world Economic View Irish housing starts highest since 2008, but still a long way to go Economic Events UK Builders Merchants UK housebuilders still to see any Ireland Brexit impact IFG Group Curtis Banks H1 show margin decline from United Kingdom investment, base rate headwinds 06-Sep BRC Retail Sales Aug 2016 07-Sep Industrial Production July 2016 FBD Holdings Updated book of quantum due by month Halifax House Price Aug 2016 end Manufacturing Production July 2016 08-Sep Construction Output July 2016 Trade Balance July 2016 13-Sep Retail Price Index Aug 2016 CPI Aug 2016

United States

Europe 06-Sep GDP Q2 2016

Goodbody Capital Markets Equity Research +353 1 6419221 Equity Sales +353 1 6670222 Bloomberg GDSE

Goodbody Stockbrokers (trading as Goodbody) is regulated by the Central . For the attention of US clients of Goodbody Securities Inc, this third-party research report has been produced by our affiliate Goodbody Stockbrokers. Please see the end of this report for analyst certifications and other important disclosures. Goodbody Morning Wrap

Applegreen Robust H1 outcome

Applegreen has reported strong H1 results this morning, with adjusted EBITDA of €13m. This Recommendation: Buy is 2% ahead of forecast and underlying growth was 24% yoy before FX gains or losses. Closing Price: €4.75 Group food and store lfl gross profit grew by 6.7% while 20 new sites were added. Adjusted Patrick Higgins net income came in 24% ahead of forecast due to a €1.4m FX-driven finance gain. +353-1-641 0403

[email protected] Applegreen’s total estate grew by 20 stations in H1 (+25% yoy) which is broadly in-line with our forecast for 47 new stations for the full year. Excluding Dealer sites, 11 new stations were added (8 PFS stations and 3 service areas). In addition, there was 9 rebrands/upgrades completed (vs. 30 forecast for full year).

Total gross profit in Ireland grew 20% to €49.1m driven by estate expansion (12 new sites added) and strong LFL gross profit growth in all three divisions (fuel +6.9%, food +8.5% and store +8.5%). The new PFS stations are located in the east and south of the country further expanding the Group’s regional network.

Despite challenging lfls in both fuel and store (-1.1% and -4.7% respectively), the Group grew gross profit by 18% in the UK. This was driven by estate expansion (2 new SAs, 5 new PFS stations) and strong LFL growth in food sales of 15.9%. In general, the Group saw a more competitive fuel environment while store sales were also impacted by a more cautious consumer in advance of Brexit. However, the statement did note that this has improved since period end.

Since the end of June, Applegreen has further expanded its estate with 7 new petrol filling stations in the UK, one new service area in Ireland and three new dealer sites. In the USA, the Group has signed an agreement with Cross America Partners to take over 9 leasehold sites in the Massachusetts area, four of which have been taken over since June 30th.

Management commented that performance since H1 has been positive with particularly strong trading in its Irish Service Areas and in UK sites in the aftermath of Brexit. We are likely to leave our FY16 adjusted net income forecast unchanged at €18.9m as a c.4.5% reduction in adjusted EBITDA to €32.2m due primarily to sterling weakness is broadly offset by the finance gain due to the same currency fluctuation (assuming sterling stays at current levels). We reiterate our positive stance on the stock. Home…

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Dalata Hotel Group Reports solid H116 numbers

Dalata reported H116 results this morning with group revenue of €130.1m (Goodbody: Recommendation: Buy €133m) and EBITDA of €35.4m (Goodbody: €36.4m). At a group level, RevPar was +11.2% Closing Price: €4.30 yoy to €74.90; driven by occupancy +20bps to 79% and average room rate (ARR) +10.8% Kevin McDermott to €94.78. +353-1-641 9162

[email protected] The hotels delivered revenue of €68.3m (+29% yoy) and EBITDA of €22.9m (+54% yoy). RevPar in the Dublin hotels in H116 was +24.2% yoy and ahead of market growth of

21.6%. The growth in RevPar was primarily achieved by an increase in ARR of 19.8% yoy to €103.07, with occupancy increasing by 300bps to 82.8%.

The Regional Ireland hotels reported revenue of €28.7m (+59.4% yoy) and EBITDA of €5.1m (+132% yoy). RevPar in these hotels increased by 12.1% yoy to €55.79, through a combination of occupancy +120bps and ARR +10% yoy. A strong positive impact was noted from the acquisition of the Choice Hotels.

The UK hotels reported revenue of €24.7m (+372% yoy) and EBITDA of €7.3m (+28% yoy). RevPar in these hotels increased by 1.7% yoy to £55.10, through a combination of occupancy -130bps and ARR +3.5% yoy.

Net debt at end of June was €191m, (RTM net debt/EBITDA of 2.6x). It has announced further investments today including the purchase of the freehold interest in Maldron Cork (€8m) and the purchase of 3 buildings beside its Parnell Sq Dublin Hotel (can add 35 rooms). It also re-iterates that it is in discussions to acquire an operating interest in the Doubletree Hilton Ballsbridge (502 rooms). This leaves Dalata with c.€25m to spend.

Overall, this is a solid set of H1 numbers from Dalata, with the group again outperforming in its main markets. On outlook, management states that trading in July and August has been very strong and it expects RevPar to continue to grow, but at a reduced pace in the remainder of 2016. In the same period, UK trading has been in line with expectations and it had seen no impact from Brexit. We will review our forecasts following this morning’s conference call, but at first glance we see scope to increase our FY16 EBITDA by c.2% from €81.5m currently. The relatively confident and reassuring tone from today’s update should reassure the market. We re-iterate our BUY recommendation.

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easyJet Demand looks good but we don’t know at what price easyJet is finishing its year to September on a stronger note than we had forecast, with pax Recommendation: Hold growth running ahead of our 5.3% forecast for Q4. August passenger numbers were up Closing Price: £11.31 6.4% yoy to 7.51m vs 7.06m last year, following on from 6.7% growth seen in July. Clearly Mark Simpson post-Brexit price promotions have helped bring in traffic. +353-1-641 0478

[email protected] Seat capacity was up 5.8% yoy to 7.92m vs 7.48m last year, giving a load factor of 94.9%, up 0.5ppt.

Given the August performance, we are adding 0.26m to our September and full year number, with total FY16 pax of 73.22m vs 72.96m previously.

All else being equal, the revision to our passenger numbers would add circa 1% to our FY16 pre-tax of £497m. However, we know that pricing had fallen to low teens declines immediately after the Brexit vote, with our current forecast for overall Q4 yields at -10.1%. As such, we are reluctant to read too much from good August traffic numbers in terms of bottom line performance.

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IAG Europe okay, long-haul weak

The key takeaway from IAG’s August traffic stats, released yesterday afternoon, was that Recommendation: Buy BA’s long-haul traffic looked weak. Closing Price: £3.92

Mark Simpson While IAG’s overall load factor was down 90bp at 85.9%, BA’s load factor was down 1.6ppt +353-1-641 0478 yoy to 85.4% based on a 2% increase in RPKs vs a 3.9% increase in capacity. North [email protected] American RPKs were up 9.7%, while ASKs were up 13.1%, giving a 2.7ppt decline in load factor; in comparison, July saw load factors fall by 0.5ppt only. Additionally, Asia RPKs were up 5.3% vs a 9.8% increase in ASKs, resulting in a 3.6ppt decline in load factor; again July only saw a 1.3ppt fall in load factor. Better geographically, UK and Spain saw combined load factor up 1.6ppt up on a marginal capacity increase of 0.3% yoy.

Premium traffic across the group remained in positive territory, up 3.4% yoy, although this was down on the 6.1% increase seen in July. However, July’s data reflected, in our opinion, a post-Brexit catch-up, given delayed travel in June which saw premium traffic up only 10bp yoy, suggesting August’s data point is a more normalised rate of growth.

In term of our traffic forecasts, we will have to up our September RPKs by 2.3%, from 21,653bn to 22,2852bn, assuming that the current month’s load factor comes in 1.5ppt down yoy at 83.2%. This reflects the fact that our original Q3 forecast meant residual September load factor would be down 3.4ppt, which looks too pessimistic. However, likely offsetting this, we think that Q3 yields are probably weaker than our current forecast fall of 9.8% (5.9% of this FX) given these poorer loads. The yield/RPK run rate to date saw Q1 yields down 3.5% yoy and Q2’s down 5.9%.

As such, we look to next month’s traffic stats as the point at which we may have to revise our forecasts, with the bias to the downside.

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DS Smith Robust statement but already at a premium to the sector

DS Smith issued a trading update for the period since May 1st with management highlighting Recommendation: Hold that the performance “has been in line with our expectations”. Management notes that Closing Price: £4.23 volume growth remains good, with both margins and ROCE showing further improvement David O'Brien yoy. We are expecting increases of about 100bps in FY17 (to April-17 end). +353-1-641 9230

david.a.o'[email protected] Following 5 transactions in FY16, DS Smith has continued its bolt-on strategy with a further three deals completed in the ytd. These have included a corrugated business in Portugal and point-of-sale businesses in the UK and Denmark. We await further financial details.

While momentum in DS Smith businesses appears robust, the stock is already trading on 8.7x EBITDA which represents a premium to peers (7-8x for Mondi / ). As a result we see better value elsewhere in the sector.

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Draper Esprit Conditional offer for Movidius

Announcements from both Intel and Draper Esprit this morning indicate that Intel has made Recommendation: Buy a conditional offer to acquire Movidius that has been accepted by investors in Movidius, Closing Price: £3.03 including Draper Esprit. Gerry Hennigan

+353-1-641 9274 The Movidius contribution to the Draper portfolio value as of December 2015 of £74.8m [email protected] amounted to £7.5m based on a fully diluted Draper interest of 10.4%. The offer will result in a total cash return to Draper, before the provision of accrued tax and carried interest payments, of £27m. Post the value attributed to Movidius at IPO, tax and carried interest, the sale (assuming conditions are agreed) is expected to provide a 21% uplift to the pro- forma NAV at admission. Based on a portfolio value of £76.4m at IPO that would translate to a c.£16m uplift to NAV. The transaction is due to complete by year-end.

In our initiation report (‘Nothing Ventured, nothing gained’) we had assumed a progressive uplift to the value of Movidius from £7.6m at IPO to £12.7m at the end of the current year to £20.3m by December 2017. Adding the guided £16m uplift in NAV to the £7.6m Movidius value at IPO (£23.6m) indicates that Draper has already achieved a value for Movidius in excess of that pencilled into our model for year-end 2017. Based on a projected NAV of £140m by the end of 2017 (equivalent to £3.44 per share) we derived a PT at IPO of £3.50. Adding the variance (£10.9m) between the estimated gross realised value for Movidius (£23.6m) and our estimated year-end 2016 value of £12.7m, on the expectation that additional funds will be invested, would increase our projected value as of December 2017 to c.£151m or £3.71 per share. We thus increase our PT to £3.75, a 24% premium to the current share price.

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Commercial Property Regulator gears up for post Brexit world

Bloomberg carries a story that Irish regulatory authorities are keen to recruit experienced UK Eamonn Hughes +353-1-641 9442 regulators ahead of a possible influx of UK based financial services firms after the UK’s Brexit [email protected] vote. Irish authorities appear interested in recruiting current and former staff at the Financial Conduct Authority and may also seek staff from the UK’s Prudential Regulation Authority.

The revelations comes as the chairman of Lloyds, the international insurance market, has warned at its annual dinner that the London-based market could move some of its operations to other parts of the EU if it loses access to the single market. In an article in the FT, the chairman indicates that Lloyds would still be based in London, with about 11% of premiums from the EU. The article notes that many of the insurers that operate at Lloyds have been drawing up contingency plans in the event the UK loses access to the single market. Most are considering setting up subsidiaries elsewhere, with Dublin a particularly popular alternative.

Dublin is an obvious alternative location for some businesses should the UK invoke its plans to leave the EU, though suffers from some capacity constraints both in terms of the availability of commercial real estate and residential real estate. Nonetheless, any material influx would likely drive rents higher over the medium term.

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Economic View Irish housing starts highest since 2008, but still a long way to go

Irish housebuilding continue ramp up from low levels, according to the latest housing Dermot O’Leary +353-1-641 9167 statistics from the Department of Housing. In July, there were 1,119 housing [email protected] commencements, taking the number of commencements in the year to date to 6219, representing the best year-to-July performance since 2008, and represents growth of 33% relative to 2015.

Encouragingly, all regions of the country are seeing a recovery in housebuilding, with the strongest growth being seen in the Mid-West (+143% yoy). The biggest contributor to the increase over the past year is the Mid-East (+38% yoy), reflecting strong demand in Dublin’s commuter counties. Surprisingly, commencements in Dublin (+1% yoy) itself are effectively flat in the year to date. An additional fact from the data is that c.40% of housing commencements are one-offs.

There is still a long way to go in the housebuilding recovery to deal with the acute issues of undersupply in certain parts of the country. It is encouraging, however, that, even prior to the full introduction of measures announced in the Government’s Action Plan for Housing that the trends are going in the right direction.

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UK Builders Merchants UK housebuilders still to see any Brexit impact

Redrow has reported full year results to 30th June with a pre-tax profit of £250m. This Robert Eason +353-1-641 9271 compares to Bloomberg consensus of £243m and follows the trading update at the end of [email protected] June when management noted that it expected results to be at the top end of the £240m analyst estimates. In terms of current trading, sales in the first 10 weeks have been David O’Brien +353-1-641 9230 encouraging (+8%), despite tough comparatives, with private forward order book +54% to david.a.o’[email protected] £807m. Of particular interest is that management notes that it has seen very little impact as Jason Molins a result of the Brexit vote. +353-1-641 9141 [email protected]

Berkeley Group issued a trading update covering the period 1 May to 31 Aug, outlining that Sarah Stokes reservations in August were in line with the first 5 months of the calendar year, which was +353-1-641 0482 [email protected] down 20%. This is reflective of lower levels of available product as well as broader market conditions. Following the Brexit vote at the end of June, management highlights that there has been no change in site visitor levels and cancellation rates are now back to normal levels. Based on forward sales, guidance of £2bn of pre-tax profit to 30 April 2018 has been reiterated.

Both results are consistent with recent updates from other UK homebuilders, with the key takeaway being no discernible impact post Brexit. In fact, the update from Redrow had an extremely positive tone with Brexit barely mentioned and management confident of achieving “another year of significant progress”.

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IFG Group Curtis Banks H1 show margin decline from investment, base rate headwinds

Curtis Banks Group, a peer of IFG’s James Hay business, has reported H1 results this Recommendation: Buy morning, with 67,161 SIPPs at period end, boosted by the acquisition of Suffolk Life in May. Closing Price: €1.93 Operating revenues were up 44% in H1, though margins eased from 36% last year to 27% Eamonn Hughes in H1 as CB flags growth in staff numbers principally in middle management and support plus +353-1-641 9442 development work required to align books of businesses acquired. Organic growth in SIPPs [email protected] was 1,627, ahead of the H115 and H215 levels. Management also notes another acquisition in July of a further 5,000 SIPPs.

In terms of outlook, CB expects profits to be H2 weighted and the outlook for 2017 is strong. It continues to see consolidation opportunities and it flags that the recent Brexit vote should have minimal impact on its business. Nonetheless, an indirect impact of the latter is lower base rates, which CB says presents challenges and will put pressure on income.

IFG recently reported H1 results, where it also flagged the headwind from base rate reductions, so the comments from CB show it is an industry-wide headwind. Also, CB recorded lower margins in H1 from investment, as did IFG, as both gear up for organic and acquisition growth. However, CB showed stronger organic SIPP growth in H1 over last year, whilst it is also still seeing acquisition opportunities over the summer, whereas IFG played down such activity in the short term.

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FBD Holdings Updated book of quantum due by month end

The Irish Independent indicates that the much awaited updated version of the “book of Recommendation: Buy quantum” of personal injury awards is due for publication before month end. The book will be Closing Price: €6.88 used by the personal Injuries Board and it is also intended to act as a guide for the judiciary Eamonn Hughes and legal profession in the setting of appropriate damages in personal injury awards. The +353-1-641 9442 updated book compiled data from c.52,000 cases in 2013 and 2014 and comes 12 years [email protected] after the original guidelines. The newspaper article indicates that updated versions in the future will be due every 2-3 years.

As flagged earlier in the summer, the report this morning flags that there are indications that there will be a c.10% rise in the recommended pay-out for lower level injuries, but the updated guide will recommend lower awards for more serious injuries and permanent injuries. The updated book will also include for detailed descriptions of injuries to make it easier for the judiciary to match with medical reports in a particular case.

The vast majority of cases for insurance companies are lower level injury claims, so an increase in pay-outs in this cohort would not be welcome for the insurance industry, though a 10% increase on the prior guidelines from 12 years ago is probably a reasonable outturn. Nonetheless, what is probably key is if the updated book convinces claimants that they would get the same award from the Injuries Board as they would get in court. This will then remove litigation costs from the claims process, benefiting both the insurance industry directly and policyholders in time through lower premiums rates.

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Market Data Top 10 Covered Companies

Company Price Mkt Cap Absolute Relative to European Sector P/E (LC) (LCM) 1 Day 1 Week 1 Mth Ytd 1 Day 1 Week 1 Mth Ytd 2016f 2017f CRH 30.90 25,203 1.3 1.2 14.4 15.7 1.3 -1.0 11.3 20.7 19.0 15.5 AIB Group 6.15 16,796 2.5 0.8 -5.4 -7.7 2.4 -1.3 -7.9 -3.7 11.8 21.5 HeidelbergCement 82.81 16,431 0.3 0.6 10.8 9.5 0.3 -1.6 7.9 14.3 16.5 14.9 12.70 16,376 0.1 4.9 5.4 -15.4 0.0 2.7 2.7 -11.7 14.2 12.0 Wolseley 44.25 11,507 -0.2 2.2 6.2 19.9 -0.3 1.9 4.6 10.0 17.5 15.4 77.67 13,654 0.4 -0.2 0.9 1.8 0.4 -2.3 -1.8 6.2 23.9 21.3 IAG 3.92 7,975 -0.1 0.1 -0.9 -35.7 -0.2 -2.0 -3.5 -33.0 5.6 4.7 Paddy Power Betfair 91.85 7,688 1.9 -4.7 0.4 1.1 1.9 -4.9 -1.2 -7.2 29.5 23.1 Mondi 15.59 7,570 0.2 -2.4 -0.3 16.9 0.1 -4.4 -2.9 21.9 12.5 12.0 DCC 70.05 6,180 0.3 - 3.2 23.8 0.3 -0.3 1.6 13.5 21.0 25.0

Indices ISEQ performance

% Price 1 Day 1 Week 1 Mth Ytd ISEQ 6,315.06 0.25 1.62 7.80 -7.02 6,800 FTSE 100 6,879.42 -0.22 0.60 1.27 10.21 6,600 6,400 DAX 30 10,672.22 -0.11 1.21 2.94 -0.66 6,200 CAC 40 4,541.08 -0.02 2.64 2.96 -2.07 6,000

FTSE Eurofirst 300 1,380.00 0.08 2.19 2.62 -4.00 5,800

Nasdaq 5,249.90 - 0.34 0.55 4.84 5,600 S&P 500 2,179.98 - -0.02 -0.13 6.66 5,400 Dow Jones 18,491.96 - -0.06 -0.28 6.12 5,200 Sep-15 Dec-15 Mar-16 Jun-16 Nikkei 225 17,037.63 0.66 1.79 4.82 -10.49

Exchange Rates

Current Px 1 day Px 1 Week Px Dec15 Avg Ytd

Stg/€ 0.838 0.839 0.854 0.737 0.797 STOXX 600 performance US$/€ 1.115 1.116 1.117 1.086 1.115 CHF/€ 1.093 1.094 1.094 1.087 1.094 390 JPY/€ 115.244 116.263 114.065 130.676 121.759 380 370 Bonds 360 350

Yield 1 Day Yld 1 Wk Yld 1 Mth Yld 3 Mth 340 US 2 Yr 0.79 - 0.79 0.06 0.02 330 US 10 Yr 1.60 - 0.04 0.02 -0.09 320 310

UK 2 Yr 0.12 - -0.03 -0.03 -0.21 300 Sep-15 Dec-15 Mar-16 Jun-16 UK 10 Yr 0.63 - 0.06 -0.04 -0.65

BD 2 Yr -0.64 - -0.02 -0.64 -0.10

BD 10 Yr -0.05 - 0.00 -0.05 -0.12

Irish 10 Yr 0.47 - 0.07 0.05 -0.27

Commodities FTSE 250 performance

% Current 1 day 5 day 1 Mth 1 Yr 18,500 Brent (ICE $/bbl) 46.83 - -0.45 5.78 -5.60 18,000 Gasoline (NYM $/Gal) 1.30 - -2.38 -5.43 -8.22 17,500

Heat Oil (NYM $/Gal) 1.41 - -1.13 7.03 -11.68 17,000

Nat.Gas 2.79 - -3.29 0.72 5.16 16,500

Gold $/oz 1,324.70 - 1.18 -1.17 18.46 16,000

Silver $/ozt 18.75 - 0.05 -7.27 27.64 15,500

Copper U$/MT 4,607.00 - 0.10 -3.87 -10.64 15,000

Wheat $/BU 3.99 - 2.83 -4.03 -14.64 14,500 Sep-15 Dec-15 Mar-16 Jun-16

Source : FactSet

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Issuer & Analyst Disclosures

Analyst Certification The named Research Analyst certifies that: (1) All of the views expressed in this research report accurately reflect my personal views about any and all of the subject securities and issuers. (2) No part of my remuneration was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report.

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Goodbody Stockbrokers acts as corporate broker to AIB Group, Applegreen, , Cairn Homes, Datalex, Draper Esprit, FBD Holdings, First Derivatives, Grafton Group, Greencore, Hibernia REIT, ICG, Kingspan, , Paddy Power Betfair, UDG Healthcare, and Wireless Group The list of companies for which Goodbody acts as market maker and on which it provides research, is available at Regulatory Disclosures

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Other disclosures

We would like to inform you that Eamonn Hughes holds shares in AIB Group We would like to inform you that holds shares in Permanent TSB We would like to inform you that Robert Eason holds shares in SIG

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